Not-so-Effective Tax Credit Programs

The Legislative Budget and Finance Committee issued a new report on the utilization and accountability of Pennsylvania’s tax credit programs. The report looks at everything from the Research and Development Tax Credits to the Organ and Bone Marrow Donor Tax Credit to the even more obscure Limited (Malt Beverage) Tax Credit.

Many of the programs were given very poor ratings, and the Committee advised lawmakers to cease some of them all together. Here are some of the highlights of the overall picture of PA’s Tax Credit Programs:

  • The tax credit amounts utilized are often far less than the amounts authorized in the legislation;
  • Little is being done to monitor or verify program results;
  • Although tax credit programs have a significant impact on Commonwealth tax revenues and can result in millions of dollars of tax benefits to individual companies, they do not require an annual appropriation, and therefore may go relatively unscrutinized for years at a time;
  • Most tax credit programs do not have clearly defined goals and objectives.

Tax credits misallocate capital to areas deemed politically important. Beyond the political distribution of tax burdens, the fact that the Pennsylvania government cannot monitor the programs effectively or measure their effectiveness should give lamwakers pause.

Additionally, narrow tax credits shift the tax burden to companies and industries not politically favored, resulting in a high tax burden and uncompetitive economic climate for the bulk of Pennsylvania businesses.